Prestige Lifting Services Pty Ltd v Wood
[2014] VSC 465
•22 September 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2013 03074
| PRESTIGE LIFTING SERVICES PTY LTD (ACN 005 697 665) | Appellant |
| V | |
| ROBERT IAN WOOD T/AS ROBERT WOOD & ASSOCIATES | Respondent |
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JUDGE: | GINNANE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 March 2014 | |
DATE OF JUDGMENT: | 22 September 2014 | |
CASE MAY BE CITED AS: | Prestige Lifting Services Pty Ltd v Wood | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 465 | |
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Appeal – Magistrates’ Court – Solicitor’s claim for fees for acting for company – Instructions from one of two warring directors – Whether director had authority to retain the solicitor – Costs Agreement – Company’s counterclaim for repayment of fees already paid – Adequacy of Magistrates’ reasons – Appeal allowed – Legal Profession Act 2004 (Vic) ss 3.4.17, 3.4.19 and 3.4.26.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr T Wodak | Foster Nicholson Jones Lawyers |
| For the Respondent | Mr A N Bristow | Robert Wood & Associates |
HIS HONOUR:
This appeal from the Magistrates’ Court concerns the right of a solicitor to charge legal fees to a company, when instructions to act for the company are given by only one of its two active directors and in circumstances in which the directors are in dispute about the conduct and control of the company.
On 12 June 2012, Mr Robert Wood, the respondent, who is a legal practitioner, commenced proceedings in the Magistrates’ Court against Mr Dale Williams and Prestige Lifting Services Pty Ltd (‘Prestige Lifting’) seeking to recover unpaid legal fees, totalling $27,924.92.
Mr Wood’s complaint alleged that on or about 25 November 2011, Mr Dale Williams, on his own behalf and on behalf of Prestige Lifting, instructed Mr Wood to act in relation to a dispute with other shareholders relating to the control of the company. It then pleads that on or about 9 December 2011, Mr Dale Williams, in his own right and on behalf of Prestige Lifting, signed a Costs Agreement, which Mr Wood had sent them. It then alleges that between the time of being instructed in November 2011 and 1 June 2012, Mr Wood conducted work on behalf of Mr Dale Williams and Prestige Lifting.
Prestige Lifting conducts a business of installing and servicing passenger lifts in buildings.
Mr Dale Williams was one of three directors of Prestige Lifting. The other directors were Mr Ron Van Munnen, who contended that he was its managing director and Mr Geoff Williams, who is the father of Mr Dale Williams. At relevant times, Mr Geoff Williams was not actively involved in the company’s business due to illness.
Mr Wood entered a default judgment against Prestige Lifting and Mr Dale Williams, but it was later set aside against Prestige Lifting and the claim against it proceeded to a hearing. Prestige Lifting counterclaimed for the sum of $14,500.00, which consisted of legal fees that the company had paid to Mr Wood and to counsel retained by him.
On 29 May 2013, the Magistrate sitting at Ringwood gave judgment for Mr Wood (trading as Robert Wood & Associates), in the sum of $27,924.92 and interest of $2,747.33 plus costs of $24,208.60 and dismissed Prestige Lifting’s counterclaim.
Each of the three directors held four of 12 issued shares and, through companies, one-third of the issued units in the PLS Unit Trust, of which Prestige Lifting is the Trustee.
In October 2011, Mr Van Munnen was injured and was absent from work for about four weeks. In that period a dispute between Mr Dale Williams and Mr Van Munnen surfaced and developed over the conduct of Prestige Lifting. Mr Dale Williams suggested that Mr Van Munnen had resigned as Managing Director, but Mr Van Munnen told staff that he had not resigned. On 24 November 2011, he wrote to Mr Dale Williams stating that he was continuing as Managing Director, that he was concerned about the company’s shortage of cash flow and lack of working capital and requiring that Mr Dale Williams repay a loan to the company by instalments, which the company records recorded as $168,361.45.
Mr Wood was engaged and instructed to act in relation to the above dispute by Mr Dale Williams on 25 November 2011. On 9 December 2011, Mr Dale Williams executed a Costs Agreement with Mr Wood. On 16 December 2011, Mr Dale Williams advised Mr Wood that he had assumed de facto control of Prestige Lifting through self-help, by changing the locks at the business premises, closing Mr Van Munnen’s company email and telephone accounts, and suspending Mr Van Munnen’s company bank account access. That day, Mr Wood sent a letter to Mr Van Munnen stating that his firm acted on behalf of Mr Dale Williams.
On 16 December 2011, Mr Wood wrote a letter to Mr Van Munnen headed ‘Company Dispute’ alleging that, unbeknown to Mr Dale Williams and Mr Geoff Williams, he had appointed himself Managing Director. It also alleged that in 2011 Mr Van Munnen had mismanaged the company and that sales had decreased substantially. It alleged that he had produced incorrect financial figures to the company’s accountant to reduce the value of the company. It alleged that Mr Van Munnen had so acted to enable him to negotiate the purchase of Mr Dale William’s shares. It alleged that he had not been at work for the past four weeks, had not, as Managing Director, been taking care of duties in operating the business, and that he had breached ss 180, 181, 182 and 183 of the Corporations Act 2001 (Cth). The letter stated that the money that Mr Van Munnen had loaned to the company would be returned to him, less any damages that he had caused to the company, in return for a transfer of shares to Mr Dale Williams, such that Mr Dale Williams could continue the activities of the company.
On 19 December 2011, Mr Van Munnen commenced a proceeding in the Corporations List of this Court naming Mr Dale Williams and Prestige Lifting as defendants and seeking injunctive relief restraining his lockout from the company premises by Mr Dale Williams. The following day, Mr Wood was instructed by Mr Dale Williams to act for both him and Prestige Lifting in the Supreme Court proceeding. Mr Wood then instructed Ms Konstantinou of counsel to act on behalf of both defendants and, at the hearing of the matter before Pagone J on 21 December 2011, Ms Konstantinou handed up an appearance for both Mr Dale Williams and Prestige Lifting signed by Robert Wood & Associates. Mr Van Munnen’s solicitor objected to this appearance on the basis that Ms Konstantinou lacked authority to act for Prestige Lifting. Pagone J noted there was no application to set aside the appearance and the hearing of the application proceeded. The injunctive relief sought was refused. Pagone J stated that in a tightly held corporation if the parties could no longer conduct themselves appropriately, the usual order was for the appointment of a receiver. The application for the injunction was not pressed but an application for an adjournment made until Mr Geoff Williams was informed of the possibility of the appointment of a receiver. Pagone J dismissed Mr Van Munnen’s application and ordered him to pay the defendants’ costs of the application.
On 25 January 2012, Ferguson J, on the oral application of the defendants, Mr Dale Williams and Prestige Lifting, made orders restraining the plaintiff, Mr Van Munnen, until 3 February 2012, from holding a meeting of directors referred to in a notice of meeting dated 23 January 2012. On 3 February 2012, Ferguson J ordered that there be leave to file and serve a notice of discontinuance of the proceeding and that each party bear their own costs of the applications made on 25 January 2012 and 3 February 2012 and that otherwise the plaintiff pay the defendants’ costs of the proceeding.
Between January and June 2012, Mr Wood issued several bills of costs to Mr Dale Williams and Prestige Lifting, for legal services provided, inter alia, in relation to the dispute with Mr Van Munnen. On 1 February 2012, Mr Dale Williams caused $10,000.00 to be paid to Mr Wood by electronic transfer in part payment of those bills from Prestige Lifting’s funds, and the following day made a payment of $4,500.00 from its funds to counsel’s clerk. On 8 February 2012, Mr Dale Williams, Mr Geoff Williams and Mr Ron Van Munnen attended a directors’ meeting and the Board passed a resolution requiring that Mr Van Munnen’s access to company premises, computer systems and accounts be restored. On 24 February 2012, Mr Dale Williams resigned as a director of Prestige Lifting.
The Costs Agreement
Mr Wood’s claim relied in part on a Costs Agreement said to have been signed by Mr Dale Williams in his own right and on behalf of Prestige Lifting.
The complaint relied on Mr Wood’s Memoranda of Costs, the first dated 16 January 2012 for $13,495.12 and further memoranda dated 7 February 2012 and 6 March 2012.
The complaint alleged that on or about 1 February 2012, Mr Dale Williams and/or Prestige Lifting forwarded the sum of $10,000.00 to Mr Wood’s trust account on account of costs and fees and a further sum of $4,500.00 was sent to the clerk of the barrister who Mr Wood had retained.
Mr Wood sued for the balance of $27,924.42.
The first Memorandum of Costs and Fees was, in fact, dated 13 January 2012 and was addressed to Mr Dale Williams, Technical Director of Prestige Lifting. It was headed ‘Re: Company Matters’. It was for the amount of $13,009.92. It listed many items of work performed between 24 November 2011 and 22 December 2011, mostly after 14 December 2011 and a substantial component of it being described as performed in connection with the Supreme Court proceeding.
The second Memorandum of Costs and Fees was dated 7 February 2012 and was again addressed to Mr Dale Williams, Technical Director of Prestige Lifting and again headed ‘Re: Company Matters’. It was for the sum of $14,300.00. Almost all the work described in it was for work performed in connection with the Supreme Court proceeding brought by Mr Van Munnen against Mr Dale Williams and Prestige Lifting.
The third Memorandum of Costs and Fees was dated 6 March 2012. It was addressed to Mr Dale Williams in the same capacity. It was again headed ‘Re: Company Matters’. It was for the sum of $2,750.00 being for work performed between 7 February 2012 and 29 February 2012.
Mr Wood sent an Account Rendered dated 21 March 2012 to Mr Dale Williams in the same capacity and headed ‘Re: Company Matters’. It summarised the payments received and recorded a total amount outstanding of $27,924.92.
Mr Wood sent a further Account Rendered on 1 June 2012 for the same amount to Mr Dale Williams, at an address in St Andrews. This Account Rendered was also headed ‘Re: Company Matters’. It referred to the three Memoranda of Costs.
There was no dispute about the quantum of the fees claimed by Mr Wood, in the sense that it was not disputed that he had performed work to the value of the amounts Mr Wood claimed. The question was whether he had been validly retained by, or authorised on behalf of, Prestige Lifting to perform work for it.
The Magistrate’s reasons
The Magistrate gave reasons for decision orally at the conclusion of the hearing. They were not provided to this Court in a revised form, but their meaning is sufficiently clear. They stated:
The Magistrate: So what we have, just to — There is a company, of which there are three directors. One who is incapacitated and takes — although rela — one is related, presumably, the two Williams’ are presumably related, given that they’ve got the same name —
Mr Bristow (who was counsel for Mr Wood): Father and son sir.
The Magistrate: And Mr. Van Munnen is at dispute. Or I should say Mr. Geoffrey Williams takes little part in the whole process because of his — he’s had a stroke or aneurysm of some form. But there’s a preliminary dispute. Things are simmering away obviously in the background, as between Mr. Van Munnen and Mr. Williams. Mr. Van Munnen said that Mr. Williams was doing things that he didn’t like, or that he shouldn’t have been doing in terms of a minor dispute, I think he said. He was arranging for payments to be made and stock and some contractual matters were — he was involved in as well. So that was apparently a preliminary dispute between all the parties, and unfortunately Mr. Van Munnen has been injured and had to absent himself from the Company and it would seem that somehow or other, immediately prior or — This dispute has escalated as between them. But what has happened is that Mr. Williams, he’s rung up his solicitor Mr. Wood, or a solicitor, Mr. Wood and said, “Well this is the problem I’ve got,” and they’ve had some discussions about all of that. Somewhere along the way he provides him with proof that he’s a Director of this company. Mr. Wood speaks to him about the Company by telephone, telephones the Company. He receives emails from the Company from Mr. Williams, and the next thing is the Company is being sued by Mr. Van Munnen, as is Mr. Williams. So you’re presented with a situation, or Mr. Wood is presented with a situation where he knows he’s a director, he knows the other director is not there, he knows the third director’s absent. His client is being sued as is the Company, as the first and second, whichever it is, second and first. I don’t know. He asks for money and he get paid, two cheques, $14,000. Mr. Van Munnen said, “I don’t dispute he acted for the Company”. Now, okay, well, that’s probably the root of the argument between the two parties, is that Mr. Williams was doing things Mr. Van Munnen thought he shouldn’t be — shouldn’t do. Whether or not we take that to its ultimate legal [nicety], we probably can’t. But what he did say is that, “the person in control is the person who’s pulling the reigns”. Well, certainly, Mr. Williams was pulling the reigns and directing the horse which was being sued in the Supreme Court of Victoria by Mr. Van Munnen. So at that point of time, it seems to me perfectly reasonable that Mr. Wood thinks that Mr. Williams has the authority to do what he’s doing. The failure to pursue the objection is probably fairly telling, I would have thought, in the Supreme Court, and the fact that the judge has accepted Ms. Konstantinou as acting for the Company. It may be that there is an ongoing dispute as to Mr. Van Munnen and Mr. Williams as to who should be paying this but certainly many companies and bodies and even — pay for their directors in legal actions; it happens all the time. And if even I wasn’t satisfied about that, how could I separate it out? There’s no process apparently before me that I can — I might have this wrong, but I don’t see any process as between Prestige Lifting and Mr. Williams in this matter. He wasn’t sought to be joined in the — sought to be indemnified or anything like that. So all in all I [find] for Mr. Wood.
The questions of law
The questions of law raised by Prestige Lifting in its Notice of Appeal were:
1.Whether the learned Magistrate was required to determine whether the Company was a purported party to the 9 December Costs Agreement.
2.Whether the date as of which the learned Magistrate assessed the question of authority was the correct date for assessing the question.
3.Whether the test applied by the learned Magistrate to determine whether Dale Williams had ostensible authority to bind the Company to the 9 December Costs Agreement was correct.
4.Whether the learned Magistrate’s finding that Dale Williams had ostensible authority to bind the Company to the 9 December Costs Agreement was open on the evidence.
5.Insofar as the learned Magistrate found that Dale Williams had actual authority to bind the Company to the 9 December Costs Agreement, whether the test applied by the learned Magistrate was correct.
6.Insofar as the learned Magistrate found that Dale Williams had actual authority to bind the Company to the 9 December Costs Agreement, whether that finding was open on the evidence.
7.Insofar as the learned Magistrate found for Robert Wood on the basis of some contract other than the 9 December Costs Agreement, whether his Honour was entitled to proceed on the basis of such other contract.
8. Whether the learned Magistrate’s reasons were adequate.
Those questions of law fall into three groups. The first is whether Prestige Lifting was party to the Costs Agreement of 9 December 2011 or, if the Magistrate acted on the basis of some contract other than that Costs Agreement, he was entitled to do so. The second group concerns Mr Dale Williams’ authority to bind Prestige Lifting to the Costs Agreement or other retainer, whereby it retained Mr Wood as its solicitor. The third group concerns the adequacy of the Magistrate’s reasons.
The parties’ submissions
The parties’ submissions about the questions of law overlapped to a substantial degree. Accordingly, it is convenient to summarise those submissions in total rather than summarising them in sections that relate to specific questions of law.
Prestige Lifting’s submissions
Prestige Lifting identified the main issue as whether Mr Wood had been validly authorised to act for Prestige Lifting as well as for Mr Dale Williams. The Board of Prestige Lifting did not resolve to engage Mr Wood and he received instructions only from Mr Dale Williams. Mr Geoff Williams and Mr Van Munnen had separate solicitors acting for them.
Ordinarily, when directors are involved in litigation about the control or management of a company, the company is not represented. Mr Dale Williams had not sought leave under s 237 of the Corporations Act 2001 (Cth) to bring proceedings on behalf of Prestige Lifting.
None of Mr Wood’s legal work for which he claimed payment was for the benefit of Prestige Lifting, but concerned the dispute between Mr Van Munnen and Mr Dale Williams and was to assist Mr Dale Williams to take control of Prestige Lifting. An instance of this was the attempt to restrain the holding of a directors’ meeting. Mr Dale Williams’ allegations that Mr Van Munnen, as a director, had breached ss 181 to 183 of the Corporations Act 2001 (Cth) were not made until Mr Wood’s letter of 16 December 2011, which was written on behalf of Mr Dale Williams.
Mr Wood’s complaint stated that on or about 25 November 2011, Mr Dale Williams, on his own behalf and as director of Prestige Lifting, instructed Mr Wood to act in relation to a dispute with other shareholders and relating to the control of the company. It pleaded that Mr Dale Williams in his own right and on behalf of Prestige Lifting signed the Costs Agreement of 9 December 2011. The Magistrate failed to make a finding as to whether Prestige Lifting was a party to the Costs Agreement. If Mr Wood’s retainer was said to be based on some other agreement made after 9 December 2011, then the Costs Agreement could not apply because the retainer of the law practice must precede a costs agreement.
The Magistrate’s reasons did not clearly identify the basis on which Mr Wood succeeded. He failed to determine if Prestige Lifting was a party to the 9 December 2011 Costs Agreement. The Magistrate appeared to have found that Prestige Lifting had retained Mr Wood as its lawyer in the dispute between directors concerning the management of the company and that Prestige Lifting was bound by the Costs Agreement.
However, the Magistrate did not state whether he found that Prestige Lifting was a party to the Costs Agreement and it appeared that his finding, that Mr Wood had been validly authorised to act on the company’s behalf, depended on the actions that Mr Wood took and the payments that he received after 9 December 2011.
The text of the Costs Agreement and the circumstances surrounding its making demonstrated that Prestige Lifting was not a party to it. Prestige Lifting was not named as a party to the Costs Agreement, was not named as a client in it and the signing clause made no reference to it.
Mr Dale Williams retained Mr Wood on 25 November 2011 to represent his interests and it is unlikely that Mr Wood would have acted for both Mr Dale Williams and for Prestige Lifting. There was no evidence that Mr Wood had complied with Rule 8 of the Professional Conduct and Practice Rules 2005 of the Law Institute of Victoria, that requires a solicitor, who acts for two parties to a matter, to avoid a conflict of interest and to obtain the consent of both parties to him so acting. Mr Wood had charged Prestige Lifting for advice and work that only benefited Mr Dale Williams. In a dispute between directors about the control of a company, a solicitor should not act for one of the warring parties whilst acting for the company itself. This was an important consideration to be taken into account in the objective determination of whether Prestige Lifting was a party to the Costs Agreement.
Section 3.4.17 of the Legal Profession Act 2004 (Vic) provides that if a law practice does not disclose to a client anything required to be disclosed, the client need not pay the legal costs unless they have been reviewed under Division 7. Section 3.4.19 deals with the basis on which legal costs are recoverable. It provides that they are recoverable in three ways: (a) under a costs agreement; (b) if paragraph (a) does not apply, in accordance with an applicable practitioner remuneration order or scale of costs, or; (c) if neither paragraph (a) nor (b) apply, according to the fair and reasonable value of the legal services provided.
The legislative provisions dealing with Costs Agreements are contained in Division 5 of Part 3.4 of the Legal Profession Act 2004 (Vic) and provide for a written agreement and an offer to enter into the agreement made to the client: s 3.4.26.
Prestige Lifting did not plead in its defence or counterclaim that Mr Wood was unable to recover the legal fees that he claimed because of any failure to comply with the provisions of the Legal Profession Act 2004 (Vic). Rather, it argued that Mr Wood had sued Prestige Lifting on the basis of a Costs Agreement that was purported to have been made under the Legal Profession Act 2004 (Vic) to which Prestige Lifting was not a party.
Prestige Lifting submitted that Mr Dale Williams did not have actual or ostensible authority to retain Mr Wood to act as solicitor on behalf of Prestige Lifting. The fact that he caused Prestige Lifting to pay fees to Mr Wood did not establish that he had actual or ostensible authority to do so. The Magistrate had relied on Mr Wood having acted for Prestige Lifting and Mr Dale Williams in the Supreme Court proceedings and Prestige Lifting having paid Mr Wood, and counsel retained by Mr Wood, a total of $14,500.00 in legal fees, but those actions were taken by Mr Dale Williams without actual or ostensible authority to retain solicitors on behalf of Prestige Lifting. Mr Wood had not pleaded that Prestige Lifting had acquiesced to his actions or ratified them so as to bind it.
Mr Dale William’s authority to engage Mr Wood as Prestige Lifting’s solicitor had to exist at the date that he retained him and could not be gained retrospectively from Mr Wood’s later actions.
Mr Dale Williams did not exercise de facto control of Prestige Lifting as Mr Van Munnen had not abandoned his role as director of it and was only absent from his duties for a few weeks because of an accident.
Mr Wood gave evidence that Mr Dale Williams did not specifically ask him to act for Prestige Lifting until 20 December 2011.
The Magistrate applied an incorrect test of ostensible or apparent authority by stating that it ‘seems to me perfectly reasonable that Mr Wood thinks that Mr Dale Williams has the authority to do what he’s doing’.
Mr Wood’s submissions
Mr Wood submitted that the Magistrate had correctly concluded that he had been validly instructed to act on behalf of Prestige Lifting, that he had been paid to act, and that Mr Van Munnen had made no objection to him acting for the company.
Mr Wood submitted that he had performed legal work on behalf of Mr Dale Williams and Prestige Lifting after he had received an ASIC search showing that Mr Dale Williams was a director. That information was sufficient to establish that Mr Dale Williams had authority to act on behalf of the company. Mr Dale Williams was running Prestige Lifting on a day to day basis from 1 October 2011, after which date Mr Van Munnen had been absent following an accident.
The Magistrate must have found that Prestige Lifting was a party to the Costs Agreement. Mr Dale Williams, who was a director of the company, had signed it. However, the purpose of the Costs Agreement was only to disclose the quantum of the lawyer’s fees and his charging rate. Those matters did not go to the question of whether a legal practitioner had been retained.
Mr Dale Williams had, at least, ostensible authority to act on behalf of Prestige Lifting. Mr Van Munnen was suing Prestige Lifting so could hardly have instructed solicitors to act on its behalf. Mr Van Munnen had commenced Supreme Court proceedings against Mr Dale Williams and Prestige Lifting alleging breaches of ss 233 and 1324 of the Corporations Act 2001 (Cth). Mr Wood was already acting on behalf of Mr Dale Williams and Prestige Lifting and prepared the Costs Agreement with them. Mr Dale Williams, as director in charge of Prestige Lifting, instructed Mr Wood to appear in the Supreme Court proceeding on his behalf and on behalf of the company. Mr Van Munnen agreed in evidence that Mr Wood had been acting on behalf of Prestige Lifting, although he contended that he should not have been.
Mr Wood’s advice was sought on 25 November 2011 and he sent a letter of 19 December 2011 to Mr Van Munnen to protect Prestige Lifting’s position. Mr Wood briefed counsel to appear on behalf of Mr Dale Williams and Prestige Lifting and filed an appearance. Although the issue of Mr Wood’s authority to represent Prestige Lifting was raised at the hearing before Pagone J, Mr Van Munnen did not apply to have Mr Wood’s appearance set aside. Mr Van Munnen only questioned Mr Wood’s authority after Mr Wood entered the default judgment.
Having been served with Mr Van Munnen’s application for an injunction two days before it was returnable, it was reasonable for Mr Dale Williams, who had already retained the services of Mr Wood, to retain him for himself and for the company to defend the Supreme Court proceedings.
In November 2011, Mr Dale Williams and Prestige Lifting retained Mr Wood, who sent them a Costs Agreement as soon as practicable thereafter and Mr Dale Williams signed it on 9 December 2011. Mr Wood was retained because Mr Dale Williams believed that Mr Van Munnen had breached the Corporations Act 2001 (Cth). Mr Wood’s retainer commenced on 25 November 2011, when he wrote to Mr Van Munnen.
Mr Wood did not sue on the Costs Agreement, but on instructions provided by Mr Dale Williams on 27 November 2011 and further instructions provided on 20 December 2011. The Costs Agreement of 9 December 2011 was merely one factor that the Magistrate was required to consider in determining whether a contract had been formed between Mr Wood and Prestige Lifting. Although the basis of the Magistrate’s finding of a retainer was not entirely clear, he had not found it to exist only on the basis of the Costs Agreement.
In the absence of any other director able or willing to provide instructions to defend Mr Van Munnen’s proceeding on behalf of Prestige Lifting, it was open to the Magistrate to find that Mr Wood had reasonably assumed that Mr Dale Williams had ostensible or actual authority to instruct him on behalf of Prestige Lifting.
Mr Van Munnen’s Supreme Court proceedings required urgent action by the company to defend it. Mr Dale Williams appeared to Mr Wood to be the only director who was acting in the company at the time, but the other directors were aware of his actions and did not object to the steps that he took to ensure that Prestige Lifting had legal representation.
The Magistrate’s statement that it seemed to him ‘perfectly reasonable that Mr Wood [thought] that Mr Dale Williams has the authority to do what he’s doing’ was a shorthand expression that Prestige Lifting’s counsel had used for expressing the test for establishing ostensible or apparent authority.
The Magistrate’s reasons were adequate, taking into account that they were delivered ex tempore.
The Magistrate presumably dismissed the counterclaim because he was persuaded that Mr Dale Williams had authority to retain Mr Wood, who was entitled to receive the legal fees that Prestige Lifting paid to him and to counsel, who had been retained.
Consideration of the questions of law and associated grounds of appeal
Questions of law 1 and 7 — The alleged contract between Mr Wood and Prestige Lifting
The grounds of appeal connected with these questions of law stated:
1.The learned Magistrate erred in law by failing to determine whether the Appellant (the ‘Company’) was a purported party to the Costs Agreement signed by Dale Williams and dated 9 December 2011 (the ‘9 December Costs Agreement’).
7.Insofar as the learned Magistrate found for Robert Wood on the basis of some contract other than the 9 December Costs Agreement, his Honour erred in law in doing so.
The first issue is to identify that Mr Wood’s case as it was pleaded. In Banque Commerciale S.A., EN Liquidation v Akhil Holdings Ltd, Mason CJ and Gaudron J stated:
The function of pleadings is to state with sufficient clarity the case that must be met. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities.
Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.[1]
[1](1990) 169 CLR 279, 286–7 [citations omitted].
These principles are equally applicable to litigation conducted in the Magistrates’ Court in accordance with the Magistrates’ Court General Civil Procedure Rules 2010 (Vic).
I have previously set out the way in which Mr Wood’s case was pleaded. In essence it alleged that Mr Dale Williams gave Mr Wood instructions to act for him and the company, that the Costs Agreement was entered into and that work was performed.
According to Mr Wood’s file note, on 25 November 2011, Mr Dale Williams spoke to Mr Wood and told him that:
they have a company with a unit trust with three partners. His father was one of the unit holders but he is no longer involved in the business and he does not have anything to do with his father since he left the business. Ron and his father are having an ongoing battle which is costing both of them a lot of money.
Dale wants to get everything finalised as soon as he can and I suggested that he send through the trust deed and the unit holdings and I will do a buy/sell agreement and a resignation from the company. He said that he had my email and will email everything through.[2]
[2]Exhibit TAS-10, Affidavit of Tim Anthony Smith dated 21 June 2013.
The file note does not suggest that Mr Dale Williams provided Mr Wood with instructions on 25 November 2011 to act on behalf of Prestige Lifting. There was no evidence presented by Mr Wood that anyone other than Mr Dale Williams provided him with instructions in November 2011. The evidence does not suggest that Mr Dale Williams had any actual authority to provide instructions to act on behalf of Prestige Lifting. The Articles of Prestige Lifting appear not to have been tendered and no article dealing with the process by which the company could appoint a solicitor to act for it was referred to. Mr Wood agreed in cross-examination that Mr Dale Williams did not ask him until 20 December 2011 to act for Prestige Lifting, but said that it was always implied that if any action was going to be taken for the removal of Mr Van Munnen, that such action would have to be taken by the directors of the company.[3]
[3]PCB 441.
Mr Wood’s file note of 20 December 2011 confirmed that Mr Dale Williams, on that day, requested that he act for him and Prestige Lifting in the Supreme Court proceedings brought by Mr Van Munnen.
The Costs Agreement of 9 December 2011[4] described the Client as:
Mr Dale Williams, Prestige Lifting Services, … [address].
Matter: Company Dispute
[4]There was apparently a second Costs Agreement, but no significance was attached to it in argument.
The conclusion of the Costs Agreement, which contained Mr Dale Williams’ signature stated:
I, the client, acknowledge that I have:
·have received a disclosure statement pursuant to Section 3.4.9 of the Legal Profession Act; and
·read and approved this Costs Agreement.
In order to rely on the Costs Agreement, Mr Wood needed to establish that, on its objective construction, Prestige Lifting was a party to it.[5] I do not consider that Prestige Lifting was a party to the Costs Agreement. It was not named as party to it and it was not signed by Mr Dale Williams on its behalf.
[5]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154.
Mr Wood’s complaint did not primarily assert that his retainer arose from the Costs Agreement, but from instructions received on or about 25 November 2011 and from his performance of work for the company subsequently. Similarly, the Magistrate did not base his decision on a conclusion that the retainer was contained in the Costs Agreement, but rather on the fact that Mr Wood performed legal work on behalf of the company, was paid by it and that Mr Van Munnen did not pursue an objection to him acting for it.
However, in my opinion those factors are not of weight unless Mr Dale Williams had authority to retain Mr Wood to act on behalf of Prestige Lifting on 25 November 2011, on 20 December 2011 or at some other date. I do not consider that Mr Wood established that Mr Dale Williams had that authority. I give my reasons for that conclusion in dealing with the next group of questions.
My conclusion in respect of the first group of questions, being questions 1 and 7, is that there was no retainer or written agreement as alleged by Mr Wood authorising him to act on behalf of Prestige Lifting. Accordingly, with respect, I cannot agree with the Magistrate that the actions taken by Mr Wood on behalf of the company on the instructions of Mr Dale Williams or his, or counsel’s, receipt of payments from the company instigated by Mr Dale Williams established that the company had retained Mr Wood as its solicitor.
The questions of law concerned with the authority of Mr Dale Williams to engage Mr Wood as the solicitor for Prestige Lifting
Questions of law 2 to 6 deal with three matters. First, whether Mr Dale Williams had ostensible authority to retain Mr Wood on behalf of Prestige Lifting on 9 December 2011, which was the date of the Costs Agreement. Secondly, whether the Magistrate applied the correct test to determine whether Mr Dale Williams did have that authority and, thirdly, whether a finding that Mr Dale Williams did have authority was open on the evidence.
The grounds of appeal that relate to these questions state:
2.In considering whether Dale Williams had ostensible authority to bind the Company to the 9 December Costs Agreement, the learned Magistrate erred in law by:
a. not considering that question as at 9 December 2011; and
b. considering the question as at some unspecified later date.
3.The learned Magistrate erred in law by applying an incorrect test to determine whether Dale Williams had ostensible authority to bind the company to the 9 December Costs Agreement:
a. The learned Magistrate should have:
i.having identified representations by which the Company was alleged to have held out Dale Williams as an agent, considered which of the representations were made by a person with actual authority;
ii.insofar as these representations consisted of appointing Dale Williams to a position within the Company, considered what was the usual authority of a person in such position;
iii.considered whether these representations, in combination, held out Dale Williams as having sufficient authority to bind the Company to the transaction in question, being a retainer of solicitors to act for the Company in relation to a dispute about the control of the company;
iv.considered whether the Respondent (‘Robert Wood’) had notice of Dale Williams lacking the requisite authority.
b. Instead, the learned Magistrate:
i.applied a rolled-up test of whether it was reasonable for Robert Wood to think that Dale Williams had authority to engage him;
ii.wrongly treated the fact that a proceeding had been instituted against the Company as an indicium of authority or a matter capable of conferring authority;
iii.wrongly treated the fact that Dale Williams had de facto control of the company as an indicium of authority in circumstances where Robert Wood knew that Dale Williams acquired de facto control through self-help and that the legitimacy of his control was disputed;
iv.wrongly treated the fact that Ron Van Munnen was absent from the Company premises as an indicium of Dale William’s authority in circumstances where Robert Wood knew that Ron Van Munnen was asserting control of the Company, that he was contactable, and that Dale Williams had excluded Ron Van Munnen from the Company through self-help the legitimacy of which was challenged;
v.wrongly treated the fact that Robert Wood had requested payment for his services and was paid out of Company funds as an indicium of authority in circumstances where he knew that Dale Williams had assumed de facto control of the Company through self-help the legitimacy of which was disputed;
vi.wrongly treated the fact Pagone J permitted Ms Teri Konstantinou to act for the Company in the Supreme Court proceedings as an indicium of authority;
vii.(if, contrary to ground 2, the learned Magistrate was determining authority as of 9 December 2011) wrongly treated matters after 9 December 2011 as indicia of ostensible authority on 9 December 2011.
4.The learned Magistrate erred in law in finding that Dale Williams had ostensible authority to bind the Company to the 9 December Costs Agreement when it was not open on the evidence to find that Dale Williams had such ostensible authority:
a. as of 9 December 2011; and
b. at any other time.
5.Insofar as the learned Magistrate found that Dale Williams had actual authority to bind the Company to the 9 December Costs Agreement, he erred in law by applying an incorrect test:
a. The learned Magistrate should have considered whether:
i.Dale Williams had express actual authority; and
ii.Dale Williams had implied actual authority, applying the tests applicable to various kinds of implied authority.
b.Instead, the learned Magistrate applied the test set out in ground 3.b.i-3.b.vi.
6.Insofar as the learned Magistrate found that Dale Williams had actual authority to bind the Company to the 9 December Costs Agreement, he erred in law by making this finding when it was not open on the evidence.
The Magistrate did not make a clear finding as to whether Mr Dale Williams had actual or apparent authority to engage Mr Wood as the company’s solicitor.
I do not consider that the Magistrate applied the correct test to determine whether Mr Dale Williams had authority to engage Mr Wood to act on behalf of Prestige Lifting. The Magistrate stated that:
So at that point of time, it seems to me perfectly reasonable that Mr. Wood thinks that Mr. Williams has the authority to do what he’s doing.
The evidence of Mr Van Munnen appeared to be that he did not dispute that Mr Wood acted for Prestige Lifting. His dispute was rather that he could not act for Mr Dale Williams. The Magistrate summarised his evidence in the following manner stating, ‘it’s pretty obvious what he meant by it. Isn’t it? He said, “I don’t dispute he acted for the company”’. [6]
[6]Magistrates’ Court Transcript 74, CB475.
Mr Van Munnen stated:
If I was to put it in layman’s terms I would say that if one person has control of the donkey, they pull the reigns. So, in other words, if somebody is told to do something then they’ll do it, so, they were acting on what they were told to do by Dale Williams who shouldn’t have been acting on his part not on the company’s part.[7]
[7]Magistrates’ Court Transcript 75, CB476.
The Magistrate referred to that statement in his decision. However, the statement referred to whether Mr Wood did act on behalf of Prestige Lifting as a matter of fact and not whether Mr Dale Williams had authority to engage Mr Wood to act on its behalf. There is no evidence, and it was not suggested, that Mr Dale Williams had actual authority, either express or implied, to retain Mr Wood on behalf of the company. There had been no resolution of the Board, giving him authority to do that. A director of a company with several directors usually has no actual authority to bind the company.[8] I do not consider that the retaining of solicitors for a company is a power or duty customarily exercised or performed by one director, especially when its directors are in dispute about the control or conduct of the company.[9]
[8]R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (14th ed) p 827 [13.080] citing Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146,205.
[9]Corporations Act 2001 (Cth) s 129(3)(b).
In Hawksford v Hawksford,[10] an application was made by one director and his trust company to restrain a solicitor from acting for two companies and to have the appearances that he had entered for them struck out. The case involved a dispute between two brothers, Brett (who was the first plaintiff) and Michael (who was the first defendant), over the operation of a business operated by the company (the second defendant) and an associated company (the third defendant) that held some of the shares in the second defendant. The shareholders of the third defendant were three companies, two of which were trustees of discretionary trusts which benefited the respective families of Brett and Michael and the other had the two brothers as its only shareholders. The fourth defendant, the solicitor, had been issued one share in both the second and third defendants to help resolve deadlocks. The solicitor relied on a written retainer signed by Michael as Managing Director. Campbell J stated of a managing director:
The litigation which Brett brings against the second and third defendants makes allegations of a kind, relating to the internal administration of the company, which it would not be within the usual scope of a managing director’s authority to deal. Michael did not have implied actual authority from either the second or third defendant to instruct solicitors to deal with them.
[10][2005] NSWSC 463, [70].
So far as the apparent or ostensible authority of Mr Dale Williams is concerned, in the context of an internal dispute between directors over the conduct or control of a company, I do not consider that, in the normal course, one director has the apparent or ostensible authority of the company to engage solicitors on its behalf.
The fact that Mr Dale Williams instructed Mr Wood to represent him and Prestige Lifting in the Supreme Court proceedings does not establish that he had ostensible authority, nor does any de facto control that he exercised over the company, nor does the fact that Mr Van Munnen did not pursue an objection to Mr Wood representing Prestige Lifting in the Supreme Court proceedings. Mr Van Munnen did not acquiesce in that representation and there was no plea of acquiescence. The fact that there was limited time to consider how the company should be represented does not establish a basis for Mr Dale Williams validly to engage Mr Wood to act on behalf of the company.
The principles governing apparent or ostensible authority are as follows:
Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority.[11]
[11]Peter Watt and F M B Reynolds, Bowstead & Reynolds On Agency (Thomson Reuters, 19th edition, 2010) 364 [8–013].
The High Court stated the principles in Pacific Carriers Ltd v BNP Paribas[12] as follows:
Where an officer is held out by a company as having authority, and the third party relies on that apparent authority, and there is nothing in the company’s constitution to the contrary, the company is bound by its representation of authority. “The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract.” It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company’s conduct must be the source of the representation. In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company’s constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon assumptions that company officers have the authority that people in their respective positions would ordinarily be expected to have. In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal’s conduct as a whole.
[12](2004) 218 CLR 451, 466–7 [36].
There was no evidence of any representation by Prestige Lifting that Mr Dale Williams had authority to act on its behalf either generally or in respect of the retention of solicitors. To the contrary, the directors of the company were in conflict about its operations. The fact that Mr Dale Williams may have appeared to Mr Wood to have been the only director present at the company at the time does not establish that he had authority to retain Mr Wood. Mr Wood knew that the company had other directors.
The subsequent matters, such as the payments that Prestige Lifting made to Mr Wood and to counsel, were actions taken by Mr Dale Williams and in circumstances where the directors of the company were in conflict and could not be said to be representations by the company about his authority at the time that Mr Wood was retained.
Prestige Lifting has established that Mr Dale Williams did not have authority to retain Mr Wood as its solicitor. With respect, the learned Magistrate erred in his finding that Mr Dale Williams did have that authority. Questions of law 2 to 6 deal with the authority of Mr Dale Williams to bind Prestige Lifting to the Costs Agreement of 9 December 2011. I have already stated my conclusion that Prestige Lifting was not a party to that Agreement, but the Magistrate’s finding in favour of Mr Wood was based on a retainer arising from his performance of work rather than on the Costs Agreement. The error that I consider the Magistrate made is identified in question of law 7 and the associated grounds of appeal, which relate to a finding in favour of Mr Wood by the Magistrate on the basis of a contract other than the 9 December 2011 Costs Agreement. For the reasons that I have given, Mr Dale Williams had no authority to retain Mr Wood as the company’s solicitor to perform that work.
Question of law 8 — the adequacy of the Magistrate’s reasons
This question of law and the associated grounds of appeal allege that the Magistrate erred in law by failing to give adequate reasons for his decision.
Reasons for judgment have to reveal the path of reasoning by which a judicial officer has decided a case.[13] The parties, especially the losing party, are entitled to know the reasoning for the decision in a case. A Court hearing an appeal from the judgment also needs to know the path of reasoning of the judicial officer.
[13]See eg Wodonga City Council v Braunack [2012] VSCA 320, [14]–[15].
In this case, the Magistrate delivered ex tempore reasons and, as is often the case in those circumstances, they necessarily did not have the precision that would have been expected if the Magistrate had had the opportunity to reserve his decision. However, a fair reading of the Magistrate’s reasons makes clear his assessment of the case. He placed particular importance on the fact that Mr Wood performed work on behalf of Prestige Lifting and had been paid for part of it and that no formal objection had been made to him so acting. He did not consider that it was decisive that Mr Dale Williams had not expressly signed the Costs Agreement on behalf of Prestige Lifting.
The Magistrate questioned how he could separate work that had been performed by Mr Wood for Prestige Lifting from work that had been performed for Mr Dale Williams. He stated that ‘I don’t see any process as between Prestige Lifting and Mr Williams in this matter’. I do not consider that this question was relevant to Mr Wood’s claim. He sought judgment against Prestige Lifting of the entire amount of the unpaid fees. He had already obtained a default judgment against Mr Dale Williams.
I consider, however, that the Magistrate’s reasons did not contain a finding of when any contract that he found to exist between Prestige Lifting and Mr Wood was made. The date of the contract would have been an important consideration if I had found that Mr Dale Williams had had authority to engage Mr Wood, because Prestige Lifting would not have been liable for any work performed before that date. I consider, with respect, the reasons were inadequate in not containing that finding. However, that omission is of little significance to the outcome of this appeal because I have found that Mr Wood was never validly retained.
Conclusion
I consider that Prestige Lifting has established that the Magistrate erred in law in respect of the issue raised by question of law 7 and the associated grounds of appeal by finding that there was a contract between Prestige Lifting and Mr Wood and that that error affected his decision. I also find that the Magistrate erred in law in respect of the issue raised by question of law 8 to a limited extent by not providing reasons which gave the date of the contract that he found to exist.
Prestige Lifting’s counterclaim
The counterclaim alleged that Mr Wood’s purported retainer by Prestige Lifting was made at a time when Mr Wood knew that Mr Dale Williams had no authority to bind the company and could not in any event act for both Mr Dale Williams and the company in an internal dispute in relation to its control.
The causes of action pleaded in the counterclaim were that: Mr Wood received the sum of $14,500.00 with actual knowledge that it had been paid from the funds of Prestige Lifting without the knowledge, authority or approval of its directors other than Mr Dale Williams, and/or; Mr Wood wilfully shut his eyes to the source of the funds, and/or; that Mr Wood failed to make inquiries that a reasonable man would have made as to whether Mr Dale Williams had the authority of his co-directors to make the payments, and/or; Mr Wood had knowledge of circumstances that would have indicated to an honest man that Mr Dale Williams was using the funds of Prestige Lifting to discharge his personal obligations to Mr Wood. The use by Mr Dale Williams of the funds was a misapplication of Prestige Lifting’s funds by Mr Dale Williams and was in breach of his fiduciary duty that he owed to the company and, alternatively, in breach of ss 181 and 182 of the Corporations Act 2001 (Cth). Mr Wood, in accepting the $14,500.00, had actual or constructive knowledge of the breach of fiduciary and statutory duty by Mr Dale Williams and was on notice that the $14,500.00 was the property of Prestige Lifting, which had not authorised those funds to be used to discharge Mr Dale Williams’ personal obligations. It was, therefore, unconscionable for Mr Wood to retain the $14,500.00. The counterclaim further, or alternatively, alleged that in accepting the funds of Prestige Lifting in discharge of Mr Dale Williams’ personal obligations, Mr Wood had been directly or indirectly knowingly concerned with, or a party to, Mr Dale Williams’ breach of ss 181 and/or 182 of the Corporations Act 2001 (Cth) and, by operation of s 79 of that Act, was a person involved in a contravention of it.
In oral submissions to the Magistrate counsel for Prestige Lifting put the counterclaim as a claim for money had and received. In written submissions counsel also alleged that Mr Wood was liable under the principles in Barnes v Addy.[14]
[14](1874) LR 9 Ch App 244.
Mr Wood denied these allegations in his defence to Prestige Lifting’s counterclaim. Prestige Lifting delivered a reply to the defence to counterclaim.
As I discussed with counsel during the hearing of the appeal, I consider that the counterclaim for the repayment of the fees paid totalling $14,500.00 needs to be remitted to the Magistrates’ Court for hearing and determination. The Magistrate made no findings about the causes of action that it contains. The significance of the fact that part of the sum of $14,500.00 was not paid to Mr Wood, but was paid directly to counsel who, of course, was not a party to the counterclaim, may need to be considered. The causes of action on which the counterclaim is based require findings of fact, particularly about Mr Wood’s knowledge of relevant matters, that the Magistrate did not make.
I do not consider that the proper resolution of Prestige Lifting’s counterclaim automatically follows from my decision on its appeal concerning Mr Wood’s complaint. I consider that the counterclaim, if it is to be pursued, requires hearing and determination by the Magistrates’ Court in light of the conclusions that I have reached on this appeal in respect of Mr Wood’s complaint.
Conclusion
The appeal succeeds and the orders of the Magistrate made on 29 May 2013 are set aside. The complaint must be dismissed. The counterclaim must be remitted to the Magistrates’ Court at Ringwood for hearing and determination according to law.
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